Tuesday, August 14, 2012

bearing burdens

Last time, I wrote that the government has four ways to distribute the burden of its spending on the nation. While most people have a basic understanding of these methods I am going to try and highlite some important aspects of each.

1) collecting taxes- Taxes are pretty straight forward. The government tells you what to pay, and you pay. A pet peave of mine is when people use the phrase "asked to pay their fair share." There has never, ever, been a citizen of this nation who has been asked to pay taxes. Everyone is told to pay their taxes, under threat of fines and imprisonment. No one "contributes" to the government. A contribution is voluntary

One of the most important things to understand about taxes is that in certain cases, the name on the check going to the government is not the name of the person who is bearing the burden. The classic example is the payroll tax. The law says that the employer pays half the tax, the employee pays the other half. The burden, however, is borne solely by the employee. The employer simply takes his portion out of the wages of the employee.

In the same vein, only people can bear the burden. One way or another, the burden is shifted from one person to another, until ultimately it is born by an individual. Corporations pay taxes, but they do not bear the burden of government spending. Stock holders, workers, and customers ultimately bear that burden.

2) selling treasury bonds- This is how almost all of our national debt takes form. The government sells a promise that in the future the government will give you more money.

Many people believe that the government should not be selling so many treasury bonds. They believe that amassing such a large amount of debt will burden our children. That view is mistaken. Present spending creates a present burden. In other words, the burdens of the government's present day spending is borne entirely by present day people. The people buying treasuries bear the burden of that debt. It is exactly  the same as if the government had taxed them. The only difference is that in exchange for bearing the burden now, the government promises that they won't have to bear a slightly larger burden in the future. This is the important point. If you believe that the government is not taxing enough, you can raise your present taxes and lower your future taxes by buying treasury bonds.

3) printing more dollars- Inflation is a tax on holding dollars. Each dollar the government prints reduces the value of existing dollars. This loss of value takes the form of rising prices, including rising wages. There is a lot of work done on exactly how inflation enters an economy, but the most simple explanation is that the government prints a dollar, and in a perfect world prices would rise, but since no one knows that the government printed that dollar prices stay the same. The government spends that dollar, at a lower price than it should be. That dollar eventually works its way through the economy, and people realize that there are more dollars than there used to be, and adjust prices accordingly. Now the rest of us have to deal with higher prices, while the government gets whatever it bought at a lower price.

4) taking by force- This, thankfully, is the least used way that the government distributes burdens. Every now and then the government forgoes the whole formality of purchasing goods and services and simply takes them. The burden of this is clearly on the owner. We see this when the government uses eminent domain and in jury duty. Thankfully we no longer have a draft, which is the biggest example of the government taking service by force.

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